What the free trade agreement means for NZ exporters

by | Mar 4, 2022 | News

The free trade agreement signed between New Zealand and the UK will eliminate all tariffs on New Zealand exports, with duties removed on 99.5 percent of current trade from entry into force. Prime Minister Jacinda Ardern and Minister for Trade and Export Growth Damien O’Connor have said the deal will unlock unprecedented access to the UK market and accelerates New Zealand’s COVID-19 recovery.

“This is a gold-standard free trade agreement. Virtually all our current trade will be duty free from entry into force, including duty-free quotas for key products like meat, butter and cheese, helping to accelerate our economic recovery,” Jacinda Ardern said.

But it’s not turning on a tap of immediate relief or revenue for exporters, with timeframes of 5 – 15 years to effectively remove all quotas and tariffs. The Government estimates the deal will boost New Zealand’s GDP by up to $1 billion as well as making significant steps towards a climate-focused trade deal, eliminating or prohibiting subsidies in key impact areas for environmental concern, such as fossil fuels and fisheries.

“As soon as it enters into force this deal will cut costs for exporters and create opportunities for New Zealand businesses to grow and diversify their trade,” Damien O’Connor said.

The New Zealand wine industry will be among the first to reap the benefits of the new deal, with $14million worth of tariffs effectively disappearing overnight once the deal is ratified. Other tariffs in the industry will take much longer to reduce but the cumulative impact will see New Zealand goods exports to the UK will increase by over 50 percent through the agreement.

New Zealand Winegrowers said it was a very positive outcome for the New Zealand wine industry that would support future growth in the market.

“This will help remove technical barriers to trade, and minimise burdens from certification and labelling requirements,” Philip Gregan, CEO of New Zealand Winegrowers said. “The UK is New Zealand’s second largest export market for wine, with exports valued at over $400 million over the past 12 months. The agreement will reduce trade barriers on New Zealand wine exports to the UK, which will make a big difference for many within our industry.”

The growing New Zealand spirits industry will also benefit, eventually with growth upwards of 50% across the imported gin category coming from the UK, reflecting global growth in that sector. For New Zealand exporters, there will be opportunity to increase the profile and awareness of New Zealand spirits brands while also supporting the UK to see category definitions of Scotch whisky embedded and accepted as part of the shared standards between New Zealand and Australia.

Other sectors to benefit include New Zealand’s honey exporters who will no longer face a $16 duty for every $100 worth of honey they send to the UK.

Māori-owned Sealord’s CE Doug Palin called the agreement a win for the fishing industry and that a lack of agreements with the UK and European Union has harmed the fishing industry.

“Species like squid and southern blue whiting, which we sell a lot of at the moment into those areas, attract a very high tariff so it means we are very uncompetitive with other countries. It will make a big difference to Sealord and to Māori by being able to get more of the profit that typically we have to spend on tariffs,” he says.

New Zealand’s dairy and red meat sectors will see increasing benefits over the next 20 years until being fully liberalised. Tariffs on butter and cheese exports to the UK would be eliminated over six years, beef after 10 years, and sheepmeat after 20 years.

In return, all tariffs on UK products entering New Zealand will be removed from day one of the agreement. While this signals good news for New Zealand industry, it poses some challenges for the long-term both here and abroad. British farmers have decried the agreement, pointing out their local industry will now be pitted against some of the most competitive and focused export growers and farmers in the world, according to Farmers Weekly in the UK.

It will be months before the agreement is formalised, first having to go through scrutiny by the Trade and Agriculture Commission in the UK and waiting for legislation to be passed to allow this agreement to be ratified. Here in New Zealand, we also face hurdles to realising the full benefits of the agreement in the short-term. The yet-to-be announced requirements of the Emissions Reduction Plan will impact on production and export across all sectors, but it’s expected to hit agriculture, horticulture and manufacturing hard and sooner than tariffs will ease.

The UK was New Zealand’s seventh largest trading partner pre-COVID, with two-way trade worth $6 billion to March 2020. The pandemic has certainly impacted that trading relationship from shipping to manufacturing challenges – The Feed has reported on the UK’s ongoing shortage of New Zealand wine, due to harvest and vintage issues. In the context of an export market that needs radical change when it comes to reliance on fossil fuels for goods transportation, greater climate impact on vintages and the medium-term impact of pandemic recovery – disappearing tariffs may mean little benefit in the short term.

Still, Damien O’Connor remains optimistic: “We are aiming for this historic agreement to enter into force by the end of 2022, after both partners have ratified the agreement through our respective parliaments.”

“By removing tariffs and other barriers that have limited the growth of our goods and services trade, as well as our investment connections, our exporters and businesses can now enter a new era of market access, levelling the playing field with the UK’s other trading partners. Over 290 environmentally beneficial products have been prioritised for tariff elimination – the largest environment goods list ever agreed in the world for an FTA.”

 

About the Author

Tash McGill

Tash McGill works as a strategy consultant in tourism, hospitality and digital transformation. She is co-founder of The Feed, President of Food Writers NZ, Chair of the New Zealand Whisky Association.

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